What’s happened in markets?

FTSE All Share -1.64% -1.92% 0.55% 10.83% 19.49% 2.11% 5.88%
Euro Stoxx 50 -0.79% -2.67% 1.49% 15.82% 22.81% 8.47% 9.73%
S&P 500 -0.96% 2.55% 3.75% 16.11% 36.64% 17.78% 17.10%
Japan Topix 1.04% -2.11% -1.35% 8.25% 25.01% 6.22% 10.44%
MSCI Asia Pac. 1.97% -1.30% -0.95% 3.96% 30.02% 11.69% 13.40%
MSCI Emerg. Mkts. 1.72% -1.77% 0.16% 4.98% 30.76% 10.56% 11.94%
Jo’burg All Shares 0.22% -1.06% -2.96% 13.73% 22.57% 9.74% 7.95%
UK Gov’t Bonds 0.65% 1.69% 2.08% -4.35% -4.73% 3.54% 2.22%
US Gov’t Bonds 0.29% 1.51% 1.82% -1.71% -2.85% 4.94% 2.42%
Global Corp. Bonds 0.29% 1.34% 2.30% -0.18% 2.89% 6.83% 4.70%
Emerg. Mkt. Local 0.42% -1.91% 0.54% -3.99% 4.31% 4.27% 3.23%

Figures in the respective local currencies as at the end of trading on 16/7/2021.

Inflation continues to be seen to run ‘hot’ and the associated conversations remain central to views on the outlook for economies given the US consumer price index (CPI) rose in June at its fastest pace since August 2008, which took the annual rate of inflation to 5.4%. The deliberation: is inflation transitory or will we see it linger?

Here, conflicting data from core inflation– which strips out volatile food and energy prices – was up too (to 4.5% in June from 3.8% in May), which is fuelling the debate further. This is because the data includes transitory numbers (such as used car sales figures, which are up) and increases in prices that tend to be persistent (such as the steady rise in house values).

Meanwhile, the Federal Reserve is still keen to tag the number as temporary – a sentiment reiterated by the Fed’s chair, Jay Powell, in his congressional testimony on Wednesday 14 July. He remained clear that the central bank is still some way off ceasing its quantitative easing (QE) policy.

But the debate might yet get hotter, as although the Bank of England has not yet made any moves to curb its asset purchases – despite its CPI number again coming in above its 2% target – a second member of the monetary policy committee suggested that this could happen in the near future. Meanwhile, New Zealand and Canada went further by ceasing and reducing their QE programmes respectively. Only time will tell whether the Fed is a long way behind the curve and has missed the opportunity to rein in inflation.

In corporate news, the earnings season really got underway during the week of 12 July, which  saw US financials report better profits on the back of higher equity trading and more firms coming to market through initial public offerings – although these tend to be prevalent in times of buoyant equity markets.

And while “Freedom Day” dawned in the UK, the news appeared to be in name only given the UK saw its number of new daily COVID-19 cases hit levels that rank it as the third highest in the world, behind Indonesia and Brazil.

In markets, developed markets (+1%) again outperformed emerging markets (-2%) over the past 30 days. Style-wise, growth stocks (+3%) retained a lead over value (-2%) versus the same period 30 days prior. The week saw the information technology (+4%) and healthcare (+2) sectors ahead, while energy (-10%), financials (-4%) and materials (-2%) lagged. Large capitalisation stocks rose +1% over the past 30 days versus the -4% posted for small capitalisation stocks.

Latest Consensus Forecast
UK GDP (QoQ) -1.6
UK PMI 62.2 61.7
UK CPI (YoY) 2.5
EU GDP (QoQ) -0.3
EU PMI 59.5 60.0
EU CPI (YoY) 1.9
US GDP (QoQ) 6.4
US PMI 60.1
US CPI (YoY) 5.4

What’s happened in portfolios?

Markets were a bit weaker in the past week due to the Delta variant spread continuing to push infection rates higher, which had an impact on our equity positions. The US, for example, saw cases jump 66% from the average daily rate during the week of 5 July, and 145% higher than the rate of the week of 28 June.

The cases also set a negative note against the burgeoning view that US growth has peaked. This played out in markets with investors favouring the more buoyant stay at home sectors (i.e. growth and non-cyclicals) over the COVID-19 sensitive sectors (i.e. cyclicals and value), which were weighed down. We remain balanced across investment styles.

The potential drop off in growth also hit fixed income markets, which together with the concerns about inflation, led to a flattening of the yield curve as longer term bond yields came down. The move was seen across government and corporate issuances, while high yield/poorer quality debt underperformed.

Meanwhile, our property investments continued their upwards trajectory, where pent up demand is visibly helping to fill the underlying commercial property with consumers at a time when supply remains limited. The scenario is providing nice tail winds for investors.

What’s happening this week?

22 Jul • European Central Bank Interest Rate Decision | 22 Jul • US Intial Jobless Claims | 23 Jul • UK Markit Composite PMI